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Sept. 14, 2018

NASCUS supports 1-year RBC delay;
notes ‘off-ramp,’ state regulator skill

Support for NCUA’s proposal to delay by one year implementation of its “risk-based capital” (RBC) rule and raising the regulation’s applicability threshold are both supported by NASCUS in its comment letter, submitted late last week.

In addition, NASCUS in its letter recommended that the agency during the year’s delay (assuming the agency finalizes the proposal) works with state regulators to develop a supplemental capital framework for insured credit unions. (See following item.)

With regard to support for NCUA’s proposal to delay the RBC rule, and for raising the rule’s applicability to credit unions with $500 million in assets or more (from $100 million), NASCUS noted that Congress’s directive to NCUA for implementing risk-based capital was to limit its application to those risks for which the standard leverage ratio was insufficient. “However, we reiterate our concerns, first raised during the proposed rulemaking in 2015, that while an asset threshold makes for ease of administration, it oversimplifies the complexities of a balance sheet and may cover more credit unions than Congress intended.”

NASCUS indicated, under the current $100 million threshold, that nearly 30% of all credit unions would be classified as “complex,” and that it is unlikely Congress ever envisioned that such a broad scope. “At $500 million, or even $1 billion, as a complexity threshold, the rule would more closely align with the spirit of section 1790 of the Federal Credit Union Act,” NASCUS wrote.

In other comments, NASCUS:

  • Urged the agency to consider developing an “off-ramp” for complex credit unions that choose to hold higher capital. Under such an alternative leverage ratio for complex credit unions, NASCUS wrote, certain qualifying credit unions subject to the risk-based capital rule could choose to hold capital in an amount pre-determined by NCUA to be a sufficient alternative to risk-weighting the institution’s balance sheet. The credit unions would be exempted from the risk-weighting requirements, which would reduce regulatory burden for some lower-risk, well-capitalized, complex credit unions, NASCUS argued (and noted that Congress authorized an “off-ramp” approach for some banks in this year’s Economic Growth, Regulatory Relied, and Consumer Protection Act (EGRRCPA, S.2155)).
  • Recommended that NCUA should revisit risk weightings of assets under the rule during the delay in the effective date of the rule. “Just as NCUA recognized the definition of ‘complex credit union’ was in need of refinement, we believe too that the original risk-weightings of the final rule should be carefully reviewed to determine what adjustments are appropriate given the changes in the credit union system in the past three years,” NASCUS wrote.
  • Agreed that proposed changes were needed to the Original Complexity Index (OCI), which now measures the products and services offered by credit unions based on 15 indicators. NCUA has proposed amending six of the indicators (the Revised Complexity Index or “RCI”). “In particular, we concur that several indicators from the OCI in 2015 represent activities that are either commonplace among virtually all credit unions, or common enough so as to defy characterization as complex. Real estate loans, including interest-only loans, internet banking, and extended maturity limits are all staples of financial services,” NASCUS noted.
  • Strongly endorsed agency consultation and cooperation with state regulators as NCUA moves forward with a final rule (and in other areas). “NCUA should leverage state regulator expertise, as mandated by Congress, in reviewing comments to this proposal before issuing a final supplemental rule,” NASCUS wrote. “We also urge NCUA to use the time during the delayed implementation to review other elements of the 2016 Final RBC rule to ensure they are rightsized for the changing credit union landscape.”

NASCUS Comments: Proposed Rule: Risk-Based Capital Supplemental Rulemaking


The proposed supplemental rule on risk-based capital is the perfect time for the agency to finalize a supplemental capital rule for natural person, non-low-income credit unions, NASCUS also wrote in its comment letter – which would, among other things, make good on a 2015 promise to do so before the final RBC takes effect.

NASCUS pointed out that Congress did not speak directly to the calculation of RBC, and thus NCUA is not limited under the law in defining what constitutes the ratio elements. “Including supplemental forms of capital in the risk-based capital numerator could help protect the NCUSIF from losses by encouraging credit unions to attract additional loss-absorbing forms of capital that they would otherwise forego,” NASCUS wrote.

The association said benefits would include:

  • allowing for measured expansion of products and services without the dilution of regulatory capital (helpful especially to modest-sized credit unions seeking to stay competitive by modernizing and enhancing member service);
  • “empowering” a credit union’s members to recapitalize, or augment the capitalization, of their credit union;
  • providing a buffer for the share insurance fund, absorbing credit union losses in a first position and mitigating potential fund losses. “The point of the risk-based capital rulemaking is to increase the capital buffer standing before the share insurance fund,” NASCUS wrote. “Supplemental capital is wholly consistent with that goal.

The NASCUS letter pointed out that NCUA has assured stakeholders (including credit unions and Congress) that supplemental capital rulemaking would accompany final implementation of risk-based capital. “In its preamble to the 2015 final RBC rule, NCUA wrote ‘[t]he Board plans to address comments supporting additional forms of supplemental capital in a separate proposed rule, with the intent to finalize a new supplemental capital rule before the effective date of this risk-based capital final rule,’” NASCUS pointed out (adding emphasis to the point).

The association also noted the agency made similar assurances to Congress in a 2015 report. “We urge NCUA to move forward expeditiously to work with state regulators on completing a framework for the use of supplemental capital in meeting risk-based capital requirements before the effective date of the risk-based capital rule,” NASCUS wrote.


A proposed rule on real estate appraisals, and a board briefing on agency appointment of administrative law judges, will be considered by the NCUA Board during its open monthly meeting Sept. 20 in Alexandria, Va.

According to the unified agenda of federal regulations (maintained by the Office of Management and Budget (OMB)), NCUA is preparing the proposed rule that would amend its regulations requiring appraisals of real estate for certain transactions. The unified agenda notes that the proposal would increase the threshold level at or below which appraisals would not be required for commercial real estate transactions.

The proposed change to the appraisal threshold, according to the agenda, reflects comments received through the Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) regulatory review process.

The agency’s agenda gave no additional information about the board briefing on administrative law judges. However, in July President Donald Trump issued an executive order stating that Federal administrative law judges will be hired directly by individual agencies, rather than from a central pool of candidates.

The order was reportedly issued in response to a recent U.S. Supreme Court decision upholding a challenge to the authority of an administrative law judge based on how government hires for those positions.

In other action, the board will consider the member business loan rule for the state of Texas (and its alignment with NCUA regulations) and hear a report on the National Credit Union Share Insurance Fund (NCUSIF).

NCUA Board meeting agenda, Sept. 20


Credit unions eligible for a partial exemption from mortgage data reporting under the recently enacted regulatory relief law should report non-exempt data points this year, even if they collected all data points prior to the rule change, NCUA said this week in its first-ever “consumer financial protection update.”

The update focuses on the interpretive and procedural rule issued Aug. 31 by the Bureau of Consumer Financial Protection (BCFP, formerly known as CFPB). That rule provided clarifications regarding the Home Mortgage Disclosure Act (HMDA) partial exemption in the Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA, S.2155 – the regulatory relief law enacted in May) and provided a link to updated filing guidelines for 2018 HMDA reporting.

In its Consumer Financial Protection Update 18-01, the agency reiterated the key points made in that BCFP ruling, effective Sept. 7, which:

  • clarifies that only “closed-end mortgage loans” and “open-end lines of credit” that are otherwise reportable under Regulation C (which implements HMDA) count toward the thresholds for the partial exemptions named in the Act.
  • permits the use of a unique, non-universal loan identifier for certain partially exempt transactions and includes parameters on what constitutes an allowable non-universal loan identifier.
  • clarifies that insured credit unions qualifying for a partial exemption may optionally report exempt data points so long as they report all data fields that the data point comprises. The rule identifies the seven data points that contain multiple data fields.
  • includes a table identifying which 26 data points in Regulation C are covered by the partial exemptions named in the Act.

The rule changes do not affect the NCUA’s supervision approach regarding 2018 HMDA data, the agency said. “For HMDA data collected in 2018 and reported in 2019, the NCUA does not intend to cite violations for data errors found in the quarterly LARs, nor require data resubmission unless data errors are material,” it wrote.

NCUA Consumer Financial Protection Update 18-01


A hearing has been postponed to Oct. 2 for NCUA and other federal financial institution regulators on their agencies’ implementation of new regulatory relief laws enacted this year. The Senate Banking Committee postponed the hearing from Thursday to the new date but gave no indication why the hearing date was moved. (Speculation for the reason has ranged from other pending business in the Senate to Hurricane Florence.) The Oct. 2 hearing is still scheduled to include as witnesses NCUA Board Chairman J. Mark McWatters, Federal Reserve Board Vice Chairman for Supervision Randal Quarles, FDIC Chairman Jelena McWilliams and Comptroller of the Currency Joseph Otting. The quartet will be reporting to the committee the actions their agencies have taken to date to implement EGRRCPA, S.2155. The hearing is set for 10 a.m.


Five policies and practices aimed to clarify use of supervisory guidance were issued in a joint statement this week by the five federal financial institution regulatory agencies – including NCUA -- which the agencies said were meant to clarify that supervisory guidance doesn’t have the force of law, and that the agencies do not take enforcement actions based on the guidance.

The five policies and practices outlined by the agencies are: limiting use of numerical thresholds or other “bright-lines” in describing their expectations; not criticizing a financial institution for a “violation” of guidance; reserving the option to seek public comment on guidance; reducing the issuance of multiple supervisory guidance documents on the same topic; and continuing efforts to make the role of supervisory guidance clear in communications.

In the statement – released by the NCUA, Federal Reserve, BCFP, FDIC, and OCC  – the agencies said that supervisory guidance can outline their supervisory expectations or priorities and articulate the agencies’ general views regarding appropriate practices for a given subject area. Guidance, the agencies said, can provide examples of practices that the agencies “generally consider” consistent with safety-and-soundness standards or other applicable laws and regulations, including those designed to protect consumers. “Supervised institutions at times request supervisory guidance, and such guidance is important to provide insight to industry, as well as supervisory staff, in a transparent way that helps to ensure consistency in the supervisory approach,” the agencies point out in the statement.

Agencies issue statement reaffirming the role of supervisory guidance


NASCUS has published a summary of NCUA’s first “Letters to Credit Unions” published in 2018, noting five key areas of examination focus for the agency. The NCUA letter (LTCU 18-CU-01), the NASCUS summary points out, looks at the agency’s: Shared NCUA-State Regulator FISCU Program; Flexible Examination Program (FLEX); ONES Data- Driven Supervision; Enterprise Solution Modernization (ESM); and Virtual Examination Program. With regard to the “shared state regulator program,” the summary points out that state regulators (working with NASCUS) and NCUA formed a working group in 2017 to evaluate improvements to the shared supervisory program for federally insured, state-chartered credit unions (FISCUs). The working group, the summary notes, has been developing a pilot program to test the concept of formally alternating exams in some FISCUs. The working group is also exploring ways to minimize duplication and overlap between NCUA and the states through improved processes and technology, the summary states (available to members only).

NASCUS Summary: Letters to Credit Unions No.: 18-CU-01 Examination Modernization Initiatives (Members only)


A bill’s preemption of state regulations regarding data breach notifications earned a letter of opposition by the state system as the measure was being marked up Thursday by the House Financial Services Committee. In the letter from NASCUS President and CEO Lucy Ito, NASCUS pointed out that H.R. 6743 (the Consumer Information Notification Requirement Act), in setting a standard for financial institution data security and breach notification, preempts state standards, among other things.

According to the letter, sent to committee Chairman Jeb Hensarling (R-Texas) and Ranking Member Maxine Waters (D-Calif.), NASCUS strongly opposes H.R. 6743 because the bill’s state preemption would interfere with a state’s ability to determine the best mechanism for providing data security protections to its citizens, as and because the bill fails to subject non-financial entities to adequate data breach standards.

“Where a state has an existing data security and breach notification apparatus in place that provides for more stringent protections-- deference should be given to the state law,” Ito wrote.

The bill, sponsored by Rep. Blaine Luetkemeyer (R-Mo.), was being marked up by the House Financial Services Committee Thursday – one of 14 bills the committee was considering (and one of 12 the committee ultimately adopted). Other bills being considered included: requiring more clarity to financial institutions for guidance from the BCFP about its rules; modifications in the roles of the Federal Reserve’s rate-setting Federal Open Market Committee (FOMC); and modification to the Fed’s mandate to ensure full employment.

The legislation was approved by the committee on a vote of 32-20; its future in the House is uncertain.

NASCUS letter in opposition to H.R. 6743


Exceptive relief is now permanent for credit unions and other financial institutions from the Financial Crimes Enforcement Network’s (FinCEN) beneficial ownership rule requirements regarding certain account rollovers and renewals, the law enforcement agency said late last week, ahead of a deadline for temporary relief.

The relief, first provided in May and extended last month, was due to expire Sept. 8. But on Sept. 7, FinCEN released its ruling (FIN-2018-R003) making that relief permanent. The ruling states that covered institutions are relieved from the obligations of the Beneficial Ownership Requirements for Legal Entity Customers (Beneficial Ownership Rule) and the requirement to identify and verify the identity of the beneficial owner, or owners, when a legal entity customer opens a new account as a result of the following:

  • a rollover of a certificate of deposit (CD, defined further in the ruling);
  • a renewal, modification, or extension of a loan (e.g., setting a later payoff date) that does not require underwriting review and approval;
  • a renewal, modification, or extension of a commercial line of credit or credit card account (e.g., a later payoff date is set) that does not require underwriting review and approval; and
  • a renewal of a safe deposit box rental.

“The exception only applies to the rollover, renewal, modification or extension of any of the types of accounts listed above occurring on or after May 11, 2018, and does not apply to the initial opening of such accounts,” FinCEN says in the ruling. “Notwithstanding this exception, covered financial institutions must continue to comply with all other applicable anti-money laundering (AML) requirements under the Bank Secrecy Act (BSA) and its implementing regulations, including program, recordkeeping, and reporting requirements.”

Extension of Limited Exception from Beneficial Ownership Requirements for Legal Entity Customers of Certain Financial Products and Services with Rollovers and Renewals (FIN-2018-R003)


Meetings of three reconstituted BCFP advisory councils, with their newly appointed memberships – including the Credit Union Advisory Council (CUAC) -- are scheduled for Sept. 27, according to a notice published by the bureau this week. The meetings of the CUAC – as well as the Consumer Advisory Board (CAB) and the Community Bank Advisory Council (CBAC) – are scheduled to occur simultaneously, on Sept. 27 from 9:30 a.m. to 4 p.m. ET. Similarly, all three of the advisory groups will have the same agenda for their respective meetings: “discuss policy issues related to financial technology,” according to the filings to the notice. Additionally, some reports have indicated that — at least for the credit union council — the bureau-proposed “disclosure sandbox,” which would receive waivers from usual federal disclosure requirements and self-report material changes in consumer complaint patterns to the bureau, will also be discussed. Acting BCFP Director John “Mick” Mulvaney is also expected to address each group, according to reports.

Late last week, the bureau announced new memberships for each of the councils; the CUAC now includes seven members (down from its previous 17 members). Four of the seven members of the new CUAC are representatives of state-chartered credit unions, according to the list published by BCFP. Teresa Campbell, president and CEO of San Diego County Credit Union in California, is a NASCUS member. The complete list of the CU council is:

  • Teresa Campbell, President & CEO, San Diego County Credit Union
  • Arlene Babwah, Vice President Risk Management, Coastal Federal Credit Union
  • Sean Cahill, President & CEO, Southwest 66 Credit Union
  • Christopher Court, Vice President, Accounting & Operations, Service 1st Federal Credit Union
  • James Hunsanger, Chief Risk Officer, Michigan State University Federal Credit Union
  • Bryan Price, President & CEO, Indiana University Credit Union
  • Eric Schmidt, President & CEO, WestStar Credit Union

BCFP announces new advisory committee members


Michigan has become the fourth state to join interstate branching agreements that include both Southeast and Midwest-Northwest states, the state’s regulator said this week. The addition of Michigan to the agreements brings 12 states to the 2009 Southeast Agreement; the state was already on the Midwest agreement (which includes 11 states). The states on the Southeast Agreement are: AL, FL, GA, IL, MI, MS, MO, NC, SC, TN, TX, WA. The states on the Midwest-Northwest Agreement are: ID, IL, IN, KY, MI, OH, OR, TX, WA, WV, WI. States on both (other than Michigan) are: IL, TX, WA.

NASCUS President and CEO Lucy Ito welcomed Michigan to both agreements, noting that, in practice, the agreements ease the procedural impediments for credit unions and demonstrate “that this is a viable choice for them to extend their operations as state-chartered financial institutions, consistent with their strategic plans, should they choose to do so.”

She also noted that a NASCUS task force is preparing to take actions that would both consolidate and strengthen the two agreements.

PRESS RELEASE: Michigan joins interstate branching agreement with 11 more states

Nationwide Cooperative Agreement for the Supervision of State-Chartered Credit Unions -

Southeastern Regional Cooperative Interstate Agreement for the Supervision of State-Chartered Credit Unions

BRIEFLY: CU exemption appears OK in new tax bill; Reg CC changes finalized; CUAD in the house

A “Tax Reform 2.0” effort being considered this week by the House Ways and Means Committee does not appear to contain any changes to the credit union tax exemption, according to reports. Among other things, the effort (which consists of three bills) is aimed at making permanent some tax cuts offered to consumers in last year’s tax reform law … The Federal Reserve Board this week released a final rule revising the liability provisions of Regulation CC (Expedited Funds Availability Act), clarifying the burden of proof in disputes between banks over substitute or electronic checks in the absence of the original check. The rule changes take effect Jan. 1, 2019 … Thanks to representatives of the Credit Union Association of the Dakotas (CUAD) for visiting NASCUS HQ in Arlington, Va., this week – as well as sitting down and talking over key state credit union issues in their states (North and South Dakota). (In the photo, at center, NASCUS’ Lucy Ito and CUAD President and CEO Jeff Olson share thoughts during joint NASCUS/CUAD meeting).

Federal Reserve Board approves final amendments to liability provisions of Regulation CC

Information Contact:
Patrick Keefe,